| Sumario: | Allocative inefficiency variations in the short-term hospital industry were investigated in an effort to fill a void in the literature on hospital cost. The data used to estimate the non-minimum cost function were derived from a cross-section of 331 short-term U.S. hospitals. Eakin and Knieser's allocative inefficiency estimates were regressed against hospital characteristics predicted by theory to be determinants of inefficiency. The results suggest that allocative inefficiency, in the form of overcapitalization and underemployment of physicians, is about 5 percent of minimum cost, or approximately $2.2 billion in 1976. The regulatory environment, market share, and hospital size were found to be related to allocative inefficiency. Competition may increase efficiency in the production of hospital services, while regulations that restrict entry may increase inefficiency.
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